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Healthcare: the availability of unlimited profits is a powerful motivating force

KEY TAKEAWAY: Healthcare is now the single biggest sector of the US economy. It is bigger than big oil, bigger than big banking, and bigger even than the famous military-industrial complex that President Dwight Eisenhower warned about in his farewell speech. In 2013, the most generous estimate pegged the price of the military-industrial complex at $ 1.3 trillion, while healthcare expenditures in 2015 were $ 3.2 trillion, consuming nearly one of every five dollars spent in the US.

Today, like big oil and big banking, the medical-industrial complex has become so vast, so wealthy, and so powerful that it is increasingly insulated from the effects of its own errors and misdeeds. Virtually every major drug and medical device company has been caught in one or more scandals, and they pay massive fines as part of the cost of doing business.

Three historical developments lie at the center of the rise of the medical-industrial complex: the explosion of medical technology beginning in the 1960s; the passage of Medicare in 1965, along with the proliferation of private health insurance; and the Bayh-Dole Act of 1980. Together, these three developments drove the corporatization of medicine, with profound implications for the way healthcare is promoted, practiced, and regulated in the US.

One of the most powerful and rapidly growing participants in this burgeoning economic network is the medical device industry. Generating estimated revenues of more than $ 136 billion in the US in 2014, the implantable-device industry is even more lucrative for many of its component companies than the highly profitable pharmaceuticals industry.

Operating-profit margins for the largest companies include 30.0 percent for Zimmer Biomet (artificial joints), 28.6 percent for Medtronic, 25.8 percent for St. Jude Medical, and 23.1 percent for Stryker (orthopedic implants).

Johnson & Johnson’s device division squirreled away $ 7.2 billion in profits in 2012, while Medtronic pulled down $ 3.6 billion in profits that year. Ultra-high prices help fuel those giant profit margins: Medtronic charges approximately $ 19,000 for a neurostimulator used to treat back pain, which is four times what it costs to manufacture the device. Hospitals pay $ 4,500– $ 7,500 for a popular type of hip implant that costs $ 350 to manufacture. Hospitals are asked to sign confidentiality agreements, obliging them not to reveal their purchase prices.